Day one: our potential CBA trade

As things stand there is no real compelling directional bias either way for CBA, although last week the bank broke and held the 2014 downtrend at A$73.45.

The MACD is still below zero, however the MACD is above the signal line (on the hourly chart); highlighting momentum is higher in the short-term

Looking at sentiment from a top down perspective I feel the failure for the S&P 500 to pullback on Friday despite a poor headline US payrolls report is very interesting and I wouldn’t be surprised to see a further rally this week in global markets.

In terms of drivers for CBA, aside from the global back drop it’s all about CBA’s 1H14 earnings on Wednesday. ANZ hit the market on Tuesday with its Q1 trading update, so naturally there will be some trends in this report we can extrapolate out for CBA. However there is no analyst’s conference attached to the update, so the market will be fully focused on Wednesday’s earnings.

In terms of actual 1H numbers, the consensus in the market is that we should see cash NPAT of A$4.17 billion (9 analysts), while they are expected to pay an interim dividend of A$1.80, which is a 9.7% increase from the same period last year.

In terms of revenue analysts expect a 7% increase on the year. However the best gauge of profitability is generally net interest margins and for CBA they are expected to print 2.14%.

Return on equity is expected to increase 70 basis points to 18.9% (against 1H 13) and is a very healthy number, showing good efficiencies in the business

In terms of kickers, it’s interesting to note that CBA has beaten expectations in cash earnings in four of the past five years, while its dividend has been stronger than forecast in all of the past three earnings reports

Valuation wise, the forward price to earnings ratio is trading on a 11% premium to its five-year average, however at 14.5x it’s has fallen from trading on 15.5x a few weeks ago.


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